Calculating the Withholding Amount

Your obligation to withhold federal income tax from your employees' wages extends to each separate wage payment that you make. For instance, it's improper for you to pay your employees their gross wages for the first three or four weekly payroll periods in a month with no taxes withheld, and then deduct all taxes for the month from the last paycheck. Each wage payment is a separate and distinct taxable event.

Because the total federal income tax you withhold from a particular employee's wages is supposed to approximate that employee's year-end tax liability, the amount you withhold for each of your employees is likely to be different. The factors affecting how much you must withhold from a given wage payment are (1) the frequency of your payroll period, (2) the employee's marital status, (3) the number of withholding exemptions the employee claims, and (4) the size of the wage payment.

Even if you're mathematically challenged, you can quickly determine your withholding amounts if you know these factors because the IRS has incorporated the required computations into easy-to-use tables.

You can obtain a free copy of the standard tables by calling the IRS at 1-800-TAX-FORM and asking for Publication 15, Circular E, Employer's Tax Guide. Additional tables are included in Publication 15A: Employer's Supplemental Tax Guide. If you use payroll software to generate your employees' paychecks, the software will automatically consult the tables and compute the tax to be withheld from each paycheck.

Standard tables. There are two basic types of withholding tables. The easiest to use are the wage-bracket tables. There are different tables for five types of payroll periods (weekly, biweekly, semimonthly, monthly, and daily/miscellaneous). Using the applicable table for your payroll period and the employee's marital status, you merely find the wage bracket within which the employee's wages fall, and then read across the table to the column that reflects the number of withholding exemptions the employee has claimed to find how much you must withhold.

The percentage method tables are the other commonly used withholding tables. Percentage method tables are available for eight different payroll periods (weekly, biweekly, semimonthly, monthly, quarterly, semiannual, annual, and daily/miscellaneous), and there are separate sets of tables for married and single employees. Your first step in using these tables is to reduce an employee's wages by the value of the employee's withholding exemptions. Then, using the applicable table for your payroll period and the employee's marital status, you find the wage bracket within which the employee's adjusted wages fall. The withholding tax is shown in the table as a dollar amount plus a percentage of that portion of the wages that exceeds the minimum bracket amount.

Alternative methods. There are a number of other methods that you can use in lieu of using the wage bracket or percentage method tables to determine how much you must withhold.

However, we suggest that you consult with your accountant or other tax professional before attempting to use any of these alternative methods because they are much more complex than the standard withholding tables.

 Keep in mind that no matter which method you select to determine your withholding taxes, you have no discretion to withhold less than the amount of tax prescribed by that method. Nor, as a general rule, may you withhold more than the prescribed amount, unless an employee requests that you do so.